MANITOWOC CO INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• The Manitowoc Way: Improvement in boom fabrication through kitting, simplifying material management (reducing material flow by 93%); Eddie Kale's test device to confirm electrical connections in superstructure assembly, saving time.
• CRANES+50 strategy: Non-new machine sales growth; mobile efforts in UK with new machines, 6 added service technicians, and second service center in Barnsley; MGX expanding branches in Baton Rouge and Phoenix, conducting Kaizen to improve crawler crane rebuild productivity by creating detailed work sequences and just-in-time material kits.

Segment Performance

• Americas: Demand for new cranes slow; utilization resilient but dealer inventory affected by high RPO activity. Waiting for interest rate cuts and election outcome; infrastructure and CHIPS bills ongoing, crane fleets aging.
• Europe: Seasonably slow; tower crane orders up but no near-term rebound; mobile crane orders down nearly 30% YOY in Q3. Long-term outlook positive due to aging fleets and infrastructure projects, but political uncertainty persists.
• Middle East: Market strong, but Chinese competitors aggressive in mobile cranes; tower cranes have strong position with dealer partner NFT.
• Asia Pacific: Prolonged economic stagnation in China overshadows region; Korean market stalled by Samsung's Fab 5 delay; Australia demand slowing but rates coming down. Non-new machine sales: Q3 non-new machine sales were $169 million, up 9% YOY; trailing 12-month at $618 million, driven by used crane sales.

Guidance

• Full year adjusted EBITDA expected at low end of guidance, assuming $50 million new machines book and ship sales.
• Need approximately $130 million of free cash flow in Q4 to hit low end of guidance; planned reduction in inventory expected to lower net leverage ratio below 3 times by year-end.
• Adjusted first quarter 2025 build schedules to minimize inventory rebound.

Risks

• Election Uncertainty: US election uncertainty impacting near-term outlook in the Americas.
• Political Uncertainty: Stalemated governments in Europe and geopolitical tensions in Germany affecting crane market.
• Competitive Pressures: Chinese competitors heavily discounting machines in Asia Pacific.
• Tariffs and Currency: Steel tariffs and currency fluctuations potentially impacting business, with US interest rates and Japan's situation also being factors.

Question and Answer

Q: Can you provide some color on the potential for margin improvement when volumes return given the productivity improvements outlined?

A: Depends on mix; tower crane business has good margins as it's at the bottom; need volume to improve margins. Build schedule reductions and mix challenges are affecting margins in the short term.

Q: Do you think there is an outcome of the election that would help more than other outcomes or is it just moving from uncertainty to more clarity?

A: Historically, a Trump outcome is best for the crane industry as it drove a bump in 2016.

Q: What series of events would have to happen to get the European tower crane jump started again?

A: Easy comps in next year's quarters, work to address housing shortages in Europe, and easing of geopolitical tensions in Germany could help; interest rate improvements also beneficial.

Q: What levers would have to be pulled to get close to $130 million of free cash flow in Q4?

A: Reduce cash CapEx, improve book and ship rate, and enhance cash collection by year-end.

Q: Can you remind us what tariffs on imports or even steel in the past impacted your business?

A: Steel tariffs were a challenge, but tariff on cranes could be favorable; monitor currency and interest rates as they impact business.

Q: I'm just trying to impute what the implied margins are for Q4. Is that correct about margins?

A: Q4 margin similar to Q3, next two quarters challenged due to build schedule reductions and mix challenges.

Q: Anything that you can comment on in terms of how you've seen quoting activity in the Americas relative to earlier in the year?

A: Quoting activity picked up recently after slow months, though orders for October were less than [150] (ph).